COVID-19: CMS Publishes Explanatory Guidance on Stark Blanket Waivers

As discussed in detail in a prior post, U.S. Health and Human Services Secretary Alex M. Azar II (the Secretary) issued blanket waivers of sanctions under the federal Physician Self-Referral Law (Section 1877 of the Act), commonly known as the Stark Law, to provide much needed flexibility for hospitals and physicians to structure relationships during the COVID-19 national emergency. On April 21, the Centers for Medicare & Medicaid Services (CMS) published the Explanatory Guidance on the blanket waivers, attempting to address common questions that they had fielded from industry stakeholders in the wake of the blanket waiver document issued on March 30, 2020.

The blanket waiver document enumerated 18 types of compensation and ownership remuneration and referrals that would be exempt from sanctions under the Stark Law if adopted during the national emergency to address a “COVID-19 Purpose” (as defined under the blanket waivers). In addition to the blanket waivers, CMS may also issue waivers under Section 1135 on a case-by-case basis upon request by a provider or supplier. The blanket waivers (as opposed to the case-by-case waivers) are self-implementing, meaning that no additional action is required for health care providers to avail themselves of the waivers. The Office of Inspector General (OIG) issued a Policy Statement on April 3rd indicating that it will not impose administrative sanctions under the Exclusion Statute and the Civil Monetary Penalty Statute that correspond to the first 11 of the Stark blanket waivers.(The remaining 7 Stark blanket waivers that the Explanatory Guidance has not addressed relate to physician-owned hospitals, home health agencies, provision of designated health services outside of the same or centralized building as a group practice, provision of DHS in a patient’s home or assisted living/independent living facility, expanded rural health care exception and failures to meet the writing requirement of an existing Stark exception.)

Also of value to the provider community, CMS has offered to work with the Department of Justice to “address False Claims Act relator suits where parties using the blanket waivers have a good faith belief that their remuneration or referrals are not covered by a blanket waiver.” This is a valuable comment reflecting the interest of the agencies in moving to attempt to dismiss or discourage relators in a scenario where providers might fail to meet the four corners of a blanket waiver.

The Explanatory Guidance provides clarification and discussion on the following points:

Physician financial relationships or referral relationships must satisfy all non-waived requirements of an applicable exception in order to avoid the referral and billing prohibitions of Section 1877 of the Act. For example, though blanket waiver #1 would permit a hospital to pay a physician group above fair market value to provide staffing needed to address the COVID-19 surge, all other elements of the personal services exception to the Stark Law must be satisfied.

Compensation terms of an existing physician compensation arrangement may be amended during the emergency period and then again following the expiration of the emergency period or an arrangement protected by a blanket waiver could take the form of an additional, separate arrangement. For example, if a physician group leases hospital-owned space, the hospital may desire to reduce rent payments during the national emergency period to enable the physician group to continue operating. Though blanket waiver #5 would permit a hospital to charge a below fair market value rental rate to a physician group during the national emergency, the blanket waiver document does not explicitly address whether an existing lease arrangement could be amended to reduce the rental rate. The Explanatory Guidance clarifies that, consistent with longstanding CMS policy, a pre-COVID-19 compensation arrangement can be amended for the purpose of changing the remuneration, even within the first year of the arrangement or after a prior remuneration amendment, provided that: all requirements of the applicable exception are satisfied; the amended remuneration is determined before the amendment is implemented; the formula for the amended remuneration does not take into account the volume or value of referrals or other business generated by the referring physician; and the overall arrangement remains in place for at least 1 year following the amendment (unless further amended).

It should be noted that, even though the blanket waivers themselves are effective March 1, 2020, a remuneration amendment can be effective only on a prospective basis. This means, for example, if a hospital desires to reduce rent charged to a physician group for space leased in a hospital owned building, the rent reduction can be effective only from after execution of the lease amendment. However, the Explanatory Guidance goes on to flag that as an alternative to “modifying” an existing compensation arrangement the parties could instead enter into a stand-alone compensation arrangement during the term of the emergency period. For example, rather than reducing the rent charged to a physician group, a hospital could provide financial support to the physician group in the form of a loan permitted under blanket waiver #10. This would presumably accomplish the same goal of supporting the physician group’s ability to meet its operating costs and ensure that medical care and related services are available to patients in the community during the emergency period.

The blanket waivers do not apply to indirect compensation arrangements. The Explanatory Guidance confirms that the blanket waivers do not apply to indirect compensation arrangements as defined at 42 C.F.R. § 411.354(c)(2). However, the Explanatory Guidance notes that, with respect to a compensation arrangement for which parties seek protection under the blanket waivers is directly between an entity and a physician organization, physicians may elect to stand in the shoes of their physician organization and convert an indirect compensation arrangement into a direct compensation arrangement. Moreover, as noted above, the parties may request an individual waiver of the sanctions under Section 1877(g) of the Act related to remuneration that constitutes an indirect compensation arrangement. Practically speaking, many indirect arrangements do not even trigger a Stark violation because the compensation arrangement does not meet the definition of an “indirect compensation” arrangement. That said, it is prudent that hospitals and others should structure any COVID-related packages to be direct compensation arrangements with the physicians, themselves, or their physician organizations to attempt to meet a blanket waiver.

Loans or deferred/abated payment obligations may be repaid in cash or in-kind after the expiration of the emergency period. Blanket waivers #10 and #11 permit remuneration in the form of a loan with an interest rate below fair market value or on terms that are unavailable from a lender that is not in a position to make referrals to or generate business for the party making the loan, while several other blanket waivers address remuneration to or form an entity or physician that is below fair market value for the office space, equipment, items or services furnished by or to the entity or physician. One consideration in light of this comment is that any loan forgiveness should be given in consideration for additional services. If a loan is issued in connection with blanket waivers #10 or #11 or if charges or payments are reduced or abated during the term of the national emergency, any such obligations may be repaid or satisfied after expiration of the national emergency. The Explanatory Guidance clarified that although the payment of such amounts after the national emergency would not violate the Stark Law even though such amounts may not be consistent with fair market value,any disbursement of loan proceeds after the termination of the blanket waivers, or additional remuneration after the termination of the blanket waivers for office space, equipment, items, or services furnished by or to an entity or physician, must satisfy all requirements of an applicable exception.

The blanket waivers would not permit the extension of existing physician recruitment arrangements with income guarantees. The Explanatory Guidance notes that CMS has received inquiries from hospitals desiring to extend existing physician income guarantees to support physician groups dealing with practice interruptions due to COVID-19. The Explanatory Guidance points to CMS’s 2007 Advisory Opinion, which advised that amendments to physician recruitment arrangements to provide for additional compensation to the recruited physician are not allowed under the physician recruitment exception (a). The Advisory Opinion explained that parties to a recruitment arrangement should not be able to amend their arrangement to provide for additional compensation to the recruited physician, because the physician would have already relocated his or her medical practice, and therefore the additional compensation would not be for the purpose of inducing relocation ( a core requirement of the exception), and instead could reflect directly or indirectly the volume or value of the recruited physician’s actual or potential referrals. The Explanatory Guidance noted that none of the blanket waivers relaxed the prohibition on amending recruitment arrangements to provide for additional (or potentially additional) compensation. As discussed above, the blanket waivers may offer other options for hospitals aiming to financially support the physicians and physician groups that serve their communities, such as loans on terms that would be otherwise unavailable from a commercial lender.

In sum, the Explanatory Guidance provides helpful discussion on some key questions related to the blanket waivers, but providers are encouraged to carefully review and document the facts and circumstances relating to any contemplated arrangement that could be protected by a blanket waiver.

Finally, as noted above, CMS has the authority to issue Section 1135 waivers for specific arrangements that may not be covered by the blanket waivers. CMS reviews Section 1135 waiver requests on a case-by-case basis, and requesting such a waiver can be done with relatively minimal administrative/legal effort.

For more information, please contact your Foley relationship partner or the Foley colleagues listed below. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the websites of the CDC and the World Health Organization.

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